The definition of an accredited investor was the main topic at a meeting this week of the Securities and Exchange Commission’s Small Business Capital Formation Advisory Committee, InvestmentNews reports.
The committee, which meets quarterly, provides a mechanism for the SEC to receive advice and recommendations on its rules, regulations and policy matters relating to small businesses, including smaller public companies.
At its meeting on Wednesday, the committee examined potential revisions that would loosen the criteria for being an accredited investor. Under the federal securities laws, only persons with this status may participate in certain securities offerings. This is to ensure that all participating investors are financially sophisticated and able to fend for themselves or sustain the risk of loss, thus rendering unnecessary the protections that come from a registered offering.
The committee considered various recommendations for expanding the definition of accredited investor in order to make it more inclusive and allow greater access to the private capital market for ordinary investors. Proponents of revising the rule say it would lead to a greater number of investors who can provide funding for start-up companies and other businesses.
Under current regulations for being accredited, individual investors must have earned income exceeding $200,000 per year or have a net worth of over $1 million.
Among the ideas being considered are establishing a certification exam to earn the status of accredited investor, and raising the thresholds for net worth and earned income for the first time in over 40 years.
Addressing the topic at the start of the meeting, SEC Chair Gary Gensler noted that private securities offerings do not carry the same disclosure requirements as those that are public.
“Any discussion about the definition of an accredited investor raises the question about when it may be appropriate to have exceptions to this basic bargain at the heart of our capital markets,” Gensler told the committee. “In essence, when is it appropriate that investors get — or not get — that full, fair, and truthful disclosure that [President Franklin] Roosevelt worked with Congress to embed in the securities laws?”
InvestmentNews reported that the small business advisory committee could make a formal recommendation to the SEC at its next meeting. An SEC spokesperson said there is no current timetable for when the commission might issue a proposal on the accredited investor issue.
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